Daily Prelims Notes 6 August 2022
- August 6, 2022
- Posted by: OptimizeIAS Team
- Category: DPN
Daily Prelims Notes
6 August 2022
Table Of Contents
- IMF-External Sector Report
- RBI monetary policy & OBICUS
- Supreme Court moots verdict to help unmarried women gain ‘bodily autonomy’ under MTP Act
- No privilege to MPs from criminal proceedings during session: Naidu
- Taiwan dominates the world’s supply of computer chips — no wonder the US is worried
- Energy conservation law to get a new look
- India’s higher climate targets
Subject: Economy
Section: External Sector
Context:
The International Monetary Fund (IMF) suggested India withdraw fiscal and monetary policy stimulus gradually in its External Sector Report.
Details:
- It has projected India’s current account deficit (CAD) to widen to 3.1 percent of GDP in FY23 from 1.2 percent of GDP in FY22.
- It would stabilise over the medium term.
- India’s net international investment position (NIIP), has improved to –11.1 per cent of GDP from –13.5 percent of GDP at the end of 2020.
- Gross foreign assets and liabilities were 30.5 percent of GDP and 41.7 percent of GDP, respectively.
- The bulk of assets were in the form of official reserves and (outward) FDI, whereas liabilities included mostly FDI and other investments.
- India’s external debt liabilities are moderate compared with peers as it is focused primarily on attracting FDI rather than the volatile FPI.
- India’s official forex reserves reached a record high of about $638.5 billion at the end of 2021 given the current account surplus.
- The reserves decreased in subsequent months but remained at a comfortable level given the eight months of import coverage, 223 per cent of short-term debt (on residual maturity) and 195 per cent of the IMF’s composite metric.
- Suggestions to maintain external sector balance in medium term:
- India needs to develop export infrastructure.
- Enter into free trade agreements with key trading partners to boost exports.
- Further liberalization in the investment regime.
- Reduction in tariffs, especially on intermediate goods.
- Gradual withdrawal of fiscal and monetary policy stimulus.
- Exchange rate flexibility should act as the main shock absorber, with limited intervention to disorderly market conditions.
Concept:
Fiscal and Monetary Policy Stimulus:
- In general, stimulus measures are aimed at boosting demand either by government spending on its own account or increasing disposable incomes of households through cash transfers or tax concessions.
- It revives business confidence, restarts stalled projects, helps in job creation and sets off a virtuous cycle of demand and growth.
- Both the Monetary and Fiscal stimulus packages are rolled out during a recession or when the production and employment levels are well below sustainable levels.
- Fiscal stimulus refers to increasing government consumption or lowering of taxes.
- Example- during the COVID-19 pandemic, the central government announced a fiscal stimulus package of Rs. 20 Lakh crore.
- Monetary stimulus refers to lowering interest rates or other ways of increasing the amount of money or credit.
- Fiscal stimulus refers to increasing government consumption or lowering of taxes.
Fiscal stimulus | Monetary stimulus |
Fiscal stimulus is a government-controlled measure that involves changing government spending and taxation to revive the economy | The monetary stimulus is controlled by central banks to stabilise the economic growth by changing the amount of money available and cost of borrowing i.e. the interest rate |
The government used fiscal stimulus packages to influence overall supply and demand by cutting down on taxes, increasing spending and boosting economic growth | A monetary stimulus is a policy model adopted by central banks to manage the supply of money in the country. The primary tool of a monetary stimulus is reducing the interest rates |
Fiscal stimulus is carried out by the government through direct spending and increase the hiring process to promote employment and growth | Monetary stimulus works in the following ways
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Fiscal stimulus packages are the last resort to increase demand and economic activity during recession. | A monetary stimulus puts extra money into people’s hands during times of recession |
Why does it need to be withdrawn?
- As per the Tobin Funnel model, a nation-state has control over two taps; one for net government spending and another for money supply.
- The water rushes through a common funnel into a tank below. The moment the tank below the funnel gets full, it overflows in the form of inflation.
- The extra government borrowing creates huge public debt.
- For example, in the case of India, the bond market believes that the Centre’s borrowing program in the next fiscal year is too high. Along with this, there is inflation and RBI is the inflation manager of the economy as well as debt manager.
- It puts RBI into the dilemma whether it should raise interest rates to tackle inflation or keep them low to support the government budget.
- So, given the rising inflation and limits to financing the debts the stimulus should be withdrawn gradually.
The External Sector Report
It analyzes global external developments and provides multilaterally consistent assessments of external positions of the world’s largest economies, representing over 90 percent of global GDP.
The report includes:
- an overview chapter that emphasizes multilateral issues;
- an analytical chapter that covers topics relevant to the analysis of external sector dynamics and adjustment mechanisms; and
- a final chapter that provides details of the external assessment of each of the 30 economies considered.
The External Sector Report, produced annually since 2012, is a key part of the IMF’s surveillance.
2. RBI monetary policy & OBICUS
Subject : Economy
Section: Monetary Policy
Context:
The MPC has raised the repo rate cumulatively by 140 bps in the May-August 2022 period from 4 per cent to 5.40 per cent to control inflation while striking a balance to enable growth in the economy.
Why the hike?
The RBI aims to bring inflation down to its targeted 4% (±2%) given the inflation being above the 6% tolerance limit for the six consecutive months.
How would it control inflation?
- Repo rate refers to the rate at which the RBI lends to commercial banks.
- When interest rates are raised, it makes money more expensive, thereby resulting in reduction of demand in the economy and bringing down inflation.
How will it impact borrowers and depositors?
- While both borrowers and depositors are expected to see a hike in lending rates and offering on deposit rates, respectively.
- Rise i n deposit rates would increase deposit to currency ratio and hence, reduce the money supply in the economy.
- The loan rate would go up and hence the EMI for the same loan. This would severely hit individuals, especially fixed incomes groups.
What will be the impact of withdrawing the accommodative policy?
It can lead to hard landing or soft landing of the economy depending on the magnitude of following impacts:
- The RBI’s market operations had led to a decline in liquidity i.e.money supply and inflation
- It would increase deposit to currency ratio thus, increase availability of funds with banks that could lead to the “credit offtake” i.e. credit supply.
- It would reduce consumer demand for goods and services and investment demand given the cost of borrowing .
- It would further lead to capital inflows and appreciation of Indian rupee thus, leading to further:
- Decline in external debt to GDP ratio,
- Increase in net international investment position to GDP ratio, and
- Increase in debt service ratio
- Rise in foreign exchange reserves given the net forward assets.
- Reduction in Current account deficit.
OBICUS
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3. Supreme Court moots verdict to help unmarried women gain ‘bodily autonomy’ under MTP Act
Subject :Polity
Section: Fundamental Rights
Context:
The Supreme Court on Friday said it may loosen the restrictive grip of a 51-year-old abortion law which bars unmarried women from terminating pregnancies which are up to 24 weeks old, saying the prohibition was “manifestly arbitrary and violative of women’s right to bodily autonomy and dignity”.
- The Medical Termination of Pregnancy Act of 1971 and its Rules of 2003 prohibit unmarried women who are between 20 weeks to 24 weeks pregnant to abort with the help of registered medical practitioners.
Key Provisions of the MTP Amendment Act, 2021:
- 1st category – In 2021, Parliament amended the 1971 MTP law and allowed for a termination under the opinion of one doctor for pregnancies up to 20 weeks.
- 2nd category – For pregnancies between 20 and 24 weeks, the amended law requires the opinion of two doctors.
- 3rd category – Opinion of the State-level medical board is essential for a pregnancy to be terminated after 24 weeks in case of substantial foetal abnormalities.
- For the second category, the Rules specified seven categories of women who would be eligible for seeking termination. Section 3B of Rules prescribed under the MTP Act reads: “The following categories of women shall be considered eligible for termination of pregnancy under clause (b) of subsection (2) Section 3 of the Act, for a period of up to twenty-four weeks, namely:
- survivors of sexual assault or rape or incest;minors;
- change of marital status during the ongoing pregnancy (widowhood and divorce);
- women with physical disabilities [major disability as per criteria laid down under the Rights of Persons with Disabilities Act, 2016
- mentally ill women including mental retardation;
- the foetal malformation that has substantial risk of being incompatible with life or if the child is born it may suffer from such physical or mental abnormalities to be seriously handicapped; and
- women with pregnancy in humanitarian settings or disaster or emergency situations as may be declared by the Government.
4. No privilege to MPs from criminal proceedings during session: Naidu
Subject :Polity
Section: Parliament
Context:
- Rajya Sabha Chairman M. Venkaiah Naidu said on Friday, that members have a wrong notion that they have a privilege from action by investigating agencies, while the session is on.
- He said he has examined all the precedents and under Article 105 of the Constitution,Members of Parliament enjoy certain privileges so that they can perform their parliamentary duties without any hindrance.
- One of the privileges is that a Member of Parliament cannot be arrested in a civil case, 40 days before the commencement of the session or Committee meeting, and 40 days thereafter. This privilege is already incorporated under Section 135A of the Civil Procedure Code, 1908.
- However, in criminal matters, Members of Parliament are not on a different footing than a common citizen. It means that a Member of Parliament does not enjoy any immunity from being arrested in a criminal case, during the session or otherwise.
- There have been a number of rulings by Presiding Officers. For instance, a ruling given in 1966 by Dr. Zakir Hussain.
- It was said, “Members of Parliament do enjoy certain privileges so that they can perform their duties. One such privilege is freedom from arrest when the Parliament is in session. This privilege of freedom from arrest is limited only to civil cases, and has not been allowed to interfere in the administration of criminal proceedings.”
- Anandan Nambiar case, the Supreme Court held that the true constitutional position is that so far as the valid order of detention is concerned, a Member of Parliament can claim no special status higher than that of an ordinary citizen, and is as much liable to be arrested, detained or questioned, even during the Session.
- The Supreme Court in a recent case, State of Kerala Vs. K. Ajith and Others, observed, that “privileges and immunities are not gateways to claim exemptions from the general law of the land, particularly as in this case, the criminal law which governs the action of every citizen.”
Article 105 : Powers, privileges, etc., of the Houses of Parliament and of the members and committees thereof
(1) Subject to the provisions of this Constitution and to the rules and standing orders regulating the procedure of Parliament, there shall be freedom of speech in Parliament.
(2) No member of Parliament shall be liable to any proceedings in any court in respect of anything said or any vote given by him in Parliament or any committee thereof, and no person shall be so liable in respect of the publication by or under the authority of either House of Parliament of any report, paper, votes or proceedings.
(3) In other respects, the powers, privileges and immunities of each House of Parliament, and of the members and the committees of each House, shall be such as may from time to time be defined by Parliament by law, and, until so defined, shall be those of that House and of its members and committees immediately before the coming into force of section 15 of the Constitution (Forty-fourth Amendment) Act, 1978.
(4) The provisions of clauses (1), (2) and (3) shall apply in relation to persons who by virtue of this Constitution have the right to speak in, and otherwise to take part in the proceedings of, a House of Parliament or any committee thereof as they apply in relation to members of Parliament.
5. Taiwan dominates the world’s supply of computer chips — no wonder the US is worried
Subject :International Relations
Section: Mapping
Context:
- One aspect of Nancy Pelosi’s trip to Taiwan that has been largely overlooked is her meeting with Mark Lui, chairman of the Taiwan Semiconductor Manufacturing Corporation (TSMC). Pelosi’s trip coincided with US efforts to convince TSMC — the world’s largest chip manufacturer, on which the US is heavily dependent — to establish a manufacturing base in the US and to stop making advanced chips for Chinese companies.
Why Taiwan is important for US?
- Taiwan’s autonomy has become a vital geopolitical interest for the US because of the island’s dominance of the semiconductor manufacturing market.
- Transformational, super-fast 5G internet emerged is enabling a world of connected devices of every kind (the “Internet of Things”) and a new generation of networked weapons.
- US semiconductor design companies, such as Intel, were heavily dependent on Asian-based supply chains for the manufacturing of their products.
- In particular, Taiwan’s position in the world of semiconductor manufacturing is a bit like Saudi Arabia’s status in OPEC. TSMC has a 53% market share of the global foundry market (factories contracted to make chips designed in other countries). Other Taiwan-based manufacturers claim a further 10% of the market.
- The United States is heavily dependent on a single company — TSMC — for producing its leading-edge chips. The fact that only TSMC and Samsung (South Korea) can make the most advanced semiconductors (known as five nanometres)puts at risk the ability to supply current and future [US] national security and critical infrastructure needs.
- In 2020, the Trump administration imposed crushing sanctions on the Chinese tech giant Huawei that were designed to cut the company off from TSMC, on which it was reliant for the production of high-end semiconductors needed for its 5G infrastructure business.
- This is all part of a broader “tech war” between the US and China, in which the US is aiming to constrain China’s technological development and prevent it from exercising a global tech leadership role.
6. Energy conservation law to get a new look
Subject :Environment
Section: Climate Change
Context:
- The Energy Conservation (Amendment) Bill, 2022, seeks to mandate use of non-fossil sources, including biomass and ethanol for energy and feedstock along with the use of green hydrogen and green ammonia.
- It also proposes to enhance the scope of Energy Conservation Building Code and bring large residential buildings within the ambit of energy conservation regime.
- The Energy Conservation Act, 2001 was last amended in the year 2010 to address various new factors which emerged with the development of the energy market over a period of time and to provide for more efficient and effective use of energy and its conservation.
- In the endeavour to empower the state electricity regulatory commissions, the bill would allow the state commissions to make regulations in terms of making applications to the commission and the fees payable.
- The bill would also empower state governments to make rules regarding fees to be levied for the services rendered by the designated agency for promoting efficient use of energy and its conservation along with the preparation of the budget of the designated agency.
- A legal framework for a carbon market with the objective of incentivizing actions for emission reduction leading to increased investments in clean energy and energy efficiency areas
- Along with the proposal to increase members in the governing council of the Bureau of Energy Efficiency, the bill, also seeks to empower the Bureau to make regulations regarding the agency which may be authorised to carry out the functions of the bureau and the technical qualification to test samples.
- The bill further said that state governments shall constitute a fund to be called the ‘State Energy Conservation Fund’ for the purposes of promotion of efficient use of energy and its conservation within the state. The fund would be credited by grants and funds by the state government, Centre and any other organisation or individua
- Under the regulatory framework for carbon credit trading, the union government or any agency authorized by it may issue carbon credit certificate to the registered entity which complies with the requirements of the carbon credit trading scheme. The registered entity shall be entitled to purchase or sell the carbon credit certificate in accordance with the carbon credit trading scheme.
- The amendment seeks to build on the progress so far. Like the standards for appliances and equipment, energy consumption standards will be specified for motor vehicles, ships and other water vessels, industrial units, and buildings. The government will be empowered to prohibit the manufacture or import of vehicles and water vessels that do not conform to prescribed energy standards.
- Every building —industrial, commerical, or residential—with a certain threshold of energy consumption, will have to adhere to new sustainable building codes. The buildings will be required to ensure that at least a part of their total energy consumption comes from renewable or non-fossil fuel sources.
- India has had a scheme to incentivise energy efficiency for over a decade now. The scheme, run by the Bureau of Energy Efficiency (BEE), is called PAT (perform, achieve, and trade), and it allows units to earn efficiency certificates if they outperform prescribed efficiency standards. The laggards can buy these certificates to continue operating.
- Domestic or regional carbon markets, though, are functioning in several places — most notably in Europe, where an emission trading scheme(ETS) works on a similar
National Hydrogen Energy Mission (NHM)
About the National Hydrogen Energy Mission:
- Focus on generation of hydrogen from green power resources.
- To link India’s growing renewable capacity with the hydrogen economy.
- India’s ambitious goal of 175 GW by 2022 got an impetus in the 2021-22 budget which allocated Rs. 1500 crore for renewable energy development and NHM.
- The usage of hydrogen will not only help India in achieving its emission goals under the Paris Agreement, but will also reduce import dependency on fossil fuels.
Hydrogen:
- Hydrogen is the lightest and first element on the periodic table. Since the weight of hydrogen is less than air, it rises in the atmosphere and is therefore rarely found in its pure form, H2.
- At standard temperature and pressure, hydrogen is a nontoxic, nonmetallic, odorless, tasteless, colorless, and highly combustible diatomic gas.
- Hydrogen fuel is a zero-emission fuel burned with oxygen. It can be used in fuel cells or internal combustion engines. It is also used as a fuel for spacecraft propulsion.
- Type of Hydrogen:
- Grey Hydrogen:
- Constitutes India’s bulk Production.
- Extracted from hydrocarbons(fossil fuels, natural gas).
- By product: CO2
- Blue Hydrogen:
- Sourced from fossil fuels.
- By product: CO, CO2
- By products are Captured and Stored, so better than gey hydrogen.
- Green Hydrogen:
- Generated from renewable energy (like Solar, Wind).
- Electricity splits water into hydrogen and oxygen.
- By Products : Water, Water Vapor
- Grey Hydrogen:
7. India’s higher climate targets
Subject :Environment
Section: Climate Change
Context:
- Two ingredients of Modi’s Glasgow Panchamrit are now official targets. Neither target — cutting emission intensity, and increasing the share of non-fossil fuels in electricity generation — seems difficult to achieve
- India’s NDC, or nationally determined commitments, have been updated with these two promises, both of which are enhancements of existing targets, and would be submitted to the UN climate body. The 2015 Paris Agreement requires every country to set self-determined climate targets which have to be progressively updated with more ambitious goals every few years. India’s first NDC was submitted in 2015, just before the Paris Agreement was finalised.
- Two promises that Modi had made in Glasgow have not been converted into official targets. The Prime Minister had announced that India’s non-fossil fuel electricity generation capacity would touch 500 GW in 2030. He had also said that India would cut at least one billion tonnes of carbon dioxide equivalent from its net projected emissions between now and 2030.
- Both these promises were tricky. The 500 GW non-fossil fuel electricity capacity target for 2030 is not easy. Of the current installed capacity of 403 GW, over 236 GW, or 58.5 per cent comes from fossil fuel sources, while non-fossil fuels, which include not just renewables like solar or wind but also hydropower, nuclear and others, make up only 167 GW. Capacity additions from non-fossil sources would have to triple in the next 10 years to reach the 500 GW target.
- The total installed electricity capacity has more than doubled in the last 10 years (from 199 GW in 2012 to 403 GW now), but it is not only because of non-fossil fuel sources. While renewables have seen an impressive increase, installed capacities from fossil fuels have also doubled during this period.